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NATIONAL SOLAR MISSION

Batch I of Phase II
Introduction
What is NSM? Salient features of NSM Batch I of Phase II Viability Gap Funding (VGF) support

Technocommercials
Key technical & commercial requirements Tentative inancials of the projects Sensitivity analysis

Key Strategies

Connectwithus October30,2013

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WHAT IS NSM?

The Jawaharlal Nehru National Solar Mission (JNNSM or NSM) is a mission launched by Government of India on the 11th January, 2010 to promote development of solar energy projects in India. by the Prime Minister. The NSM has set the ambitious target of deploying 20,000 MW of grid connected solar power by 2022 is aimed at reducing the cost of solar power generation in the country through (i) long term policy; (ii) large scale deployment goals; (iii) aggressive R&D; and (iv) domestic production of critical raw materials, components and products, as a result to achieve grid tariff parity by 2022. NSM will create an enabling policy framework to achieve this objective and make India a global leader in solar energy. NSM was supposed be executed in three phases. Phase 1: 1,000 MW (by 2013) Phase 2: cumulative 4,000 MW (by 2017) Phase 3: cumulative 20,000 MW (by 2022) In the Phase 1 of the Mission, 950 MW solar power projects were selected in two batches (batch-I during 2010-11 and batch-II during 2011-12) through a process of reverse bidding. NTPC Vidyut Vyapar Nigam Limited (NVVN) was appointed as the nodal authority for purchase of power from developers and further sale to distribution utilities/ Discoms after bundling with power from unallocated quota of power from coal based stations of NTPC on equal capacity basis. A total capacity of 420 MW has been commissioned under these batches by the end of Phase-1. In addition, a capacity of 50.5 MW under migration scheme, 88.8 MW under IREDA-GBI scheme and 21.5 MW under old Demonstration scheme has been commissioned, taking the total capacity commissioned to 680.80 MW. For Phase 2 of NSM, on account of unavailability of conventional power for bundling, the Government has ixed the solar tariff at Rs. 5.45 per unit (Rs. 4.75 per unit if accelerated depreciation is availed) and shall assist the developers by providing Viability Gap Funding to make the solar projects viable at this tariff. Detailed guidelines for bidding under NSM Phase 2 Batch I is issued by the Government of India on 28th October 2013.

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SALIENT FEATURES OF NSM PH II BATCH I

Approach To incentivize setting up of a large number of Solar Power Projects and minimizing the impact of tariff on the distribution companies, Viability Gap Funding (VGF) Scheme has been selected. Implementation will be by the Solar Energy Corporation of India (SECI).

NSM Documents

Total Capacity Total capacity: 750 MW Minimum capacity: 10 MW and in multiples there of Maximum Project capacity: 50 MW The total capacity to be allocated to a Company including its Parent, Af iliate or Ultimate Parent-or any Group Company shall be limited to 100 MW. Maximum of ive projects at different locations with aggregate capacity not exceeding 100 MW. A waiting list of up to 100 MW may be maintained up to date of Financial Closure. Financial Quali ication Criteria Minimum Net Worth requirement at the rate of Rs. 2 crore per MW of the project capacity up to 20 MW and Rs. 3 crore per MW for the capacity above 20 MW. Connectivity with the Grid Inter-connection with the transmission network of STU/CTU or any other transmission utility at voltage level of 33 KV or above. The responsibility of getting connectivity, development & maintenance of transmission system and metering will lie with the Project Developer. Clearances & Approvals All the clearances & approvals required for the project shall be obtained by the Project Developer.

Final Guidelines for Batch-I,

Phase-II of JNNSM

RfS Document for 750 MW

Grid Connected Solar PV Projects under Phase-II Batch-I of JNNSM

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Domestic Content Requirement A capacity of 375 MW to be bided with Domestic Content Requirement (DCR). The solar cells and modules used in the solar PV power plants must both be made in India. Tariff Separate tariffs for the projects availing/not availing accelerated depreciation bene its are ixed. The tariffs are irm for the 25 years of project period. With Accelerated Depreciation Bene it: Rs. 5.45 per Unit Without Accelerated Depreciation Bene it: Rs. 4.75 per Unit. Viability Gap Funding The developer will be provided a viability gap fund based on his bid. The upper limit for VGF is 30% of the project cost or Rs.2.5 Cr./MW, whichever is lower. The developer has to put his own equity of at least Rs.1.5 Cr./MW. The remaining amount can be raised as loan from any source by the developer. The VGF will be released in six tranches as follows: 50% : Upon commissioning 10% : End of 1st Year 10%: End of 2nd Year 10% : End of 3rd Year 10% : End of 4th Year 10% : End of 5th Year If the project fails to generate any power continuously for any 1 year within 25 years or its major assets (components) are sold or the project is dismantled during this tenure, VGF to be refunded back on pro-rata basis or else a claim on assets equal to the value of VGF released, on pro-rata basis.

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SALIENT FEATURES OF NSM PH II BATCH I

Fees, Charges & Bank Guarantees Non-refundable processing fee of Rs. 1 Lakh for each Project upto 20 MW capacity and of Rs.2 Lakh for each project above 20 MW capacity. Earnest Money Deposit (EMD) of Rs. 10 Lakh/MW in the form of Bank Guarantee. Performance Bank Guarantee of Rs. 20 Lakh/MW at the time of signing of PPA. In addition to the Performance Bank Guarantee of Rs. 20 Lakh/ MW to be provided At the time of signing of PPA, the Bank Guarantee towards EMD will also be converted into Performance Bank Guarantee. Electricity Generation The developers have to declare the CUF upon commissioning which shall in no case be less than 17% over a year. CUF shall be maintained within 15% and +10% of the declared value till the end of 10 years from COD subject to the CUF remaining over minimum of 15% and within - 20% and +10% thereafter till the end of the PPA duration of 25 years. The lower limit be relaxable to the extent of grid non-availability for evacuation. Penalty in case of shortfall in CUF from the minimum level; equal to the compensation payable (including RECs) by the Discoms towards non-meeting of RPOs. Excess generation from the maximum level of CUF shall be purchased by SECI at Rs. 3 per Unit.

Selection Process & Implementation Agreement Request for Selection (RfS) shall be issued inviting bids quoting the VGF requirement for setting up the Solar PV Power projects at locations of choice. Bid submission & evaluation to be done separately for the categories of with and without DCR. Selection of projects for allotment will start from L1 (in terms of lowest VGF requirement) and go up to the level where the speci ied maximum MW capacity to be allocated under the chosen Category is reached. Letter of Intent (LoI) shall be issued to successful bidders and sign Power Purchase Agreements (PPAs) valid for a period of 25 years. The solar power purchased by SECI shall be sold to State Utilities/ Discoms/ other Bulk Consumers under Power Sale Agreements (PSA) at a ixed tariff of Rs.5.50/kWh (Rs.4.75/kWh in case of projects availing bene it of accelerated depreciation) for 25 years (including Trading Margin of SECI @ 5 paisa/kWh). Payment Security Mechanism SECI shall set up a payment security mechanism in order to ensure timely payment to the developers. The money received from encashment of BGs, interest earned on this fund, incentives for early payment, the extra money coming from 10% lower tariff to developers claiming AD and the grants from Government/ NCEF will be used to build a fund for providing Payment Security Mechanism. This fund will have a corpus to cover 3 months payment.

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IMPLEMENTATION SCHEDULE

SN 1 2 3 4 5

Event RfS Document Issuance of RfS Document Submission & opening of Bids Evaluation of Techno-Commercial Bids & Short listing of Bidders Opening of Financial Bids

Date Zero Date 7 days from Zero Date 60 days from Zero Date 60 days from Submission of Bids (SN 3) 7 days from Short listing of Bidders (SN 4) 15 days from opening of Financials Bids (SN 5) 30 days from Issuance of LoIs (SN 6)

Issuance of LoIs

PPA Signing

Financing Arrangments

210 days from PPA signing (SN 7)

Commissioning of Projects

13 months from PPA signing SN 7)

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KEY TECHNICAL & COMMERCIAL CONCIDERATIONS

Site Selection As there is no concept of Solar Park under NSM Phase II Batch I and also no support will be given by the Government for the land acquisition, the Project Developer has to identify and select the site suitable for the Project. Parameters such as land availability and costs, solar resource availability, proximity to the grid, water etc have to be considered while evaluating the sites. Land Acquisition As acquisition of land is the biggest hurdle for the development of projects in India, the same is of utmost importance for the Developer. Suitable land should be identi ied and inalized (in terms of inprinciple agreement or agreement to sale etc) before the submission of bids. Clearances & Approvals Obtaining all the necessary clearances & approvals are the responsibility of the developer. Hence, the timelines and risks associated with this are required to be considered. DCR Requirement for 375 MW Projects Developer has to take into consideration the domestic modules while bidding under the DCR Category; Availability of modules, quality, CUF estimation, degradation & warranty aspects etch are required to be considered. Grid Connectivity In the absence of the Solar Park concept, the cost of developing and maintaining the evacuation systems as well as generation losses on account of down time of the grid have to be taken into consideration.

VGF Disbursement As the VGF to be disbursed over the period of 6 years from project start date; the same should take into account in the inancials models of the Project. Further, various political and economical risks associated with the disbursement of VGF shall also be considered while arriving at the biding amount. Delay in disbursement of VGF by the Government will hamper the inancials of the Projects. Off-take Risks Absence of irm mechanism to ensure a match between states willing to buy power at the predetermined prices and developers preference of location for the projects Lack of clarity on how the SECI will ensure the off-take of the power to states across the country that might be willing to buy the power. Payment Security Mechanism Lack of clarity in terms of how the payment security will be provided by SECI to the developers. The current mechanism of collecting corpus of fund suf icient for 3 months payment is not adequate considering the lower tariff and high amount of upfront equity funding from the developer. Further, without the proper payment security mechanism, the banks/FIs will also be hesitant to provide funds at D:E ratio of 70:30.

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TENTATIVE FINANCIALS

Financials Considering a standard project size of 10 MW (11 MWp), the inancials of the Project will look like below based on the assumptions depicted herewith. Project IRR: 14.7% Equity IRR: 15.0%

Assumptions CAPEX: Rs. 6.6 Crs/MW VGF Percentage: 25% of the Project
Cost

PLF: 19% Interest Rate: 13% D/E Ratio : 70/30 Tariff : Rs. 5.45 per Unit (W/o Depreciation Bene its) escalation

OPEX: Rs. 6 Lacs/MW with 5% annual

Project NPV: Rs. 8 Crs Equity NPV: Rs. 5 Crs

Project Payback: 6.6 Years Equity Payback: 11.4 Years

TENTATIVE FINANCIALS
Sensitivity of the change in key variables such as CAPEX, VGF Percentage, Interest Rate, PLF and OPEX using the radar chart analysis is presented below.

GridLossess( 1%)

OPEX/MW (1 Lacs) 0.8% 0.7% 0.6% 0.2% 0.4% 0.2% 0.4% 0.0% 0.5% 0.6% CAPEX/MW ( 10 Lacs)

VGF Percentage (+1%)

0.7% InterestRate ( 0.5%)

CUF(+0.2%)

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KEY STRATEGIES
As the individual project size is 10 MW and in multiples thereof, developers shall try to reduce the beta of the bid amount by lower VGF in lowest bids and higher for the highest bids. Hoping the VGF disbursement as per the de ined schedule the Developer shall avail cheaper short term inancing such as buyers credit or bridge loans. As the maximum CUF limit is adequately high, developers may try to maximize the DC iled thereby getting higher generation with relatively lower increase in CAPEX.

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